Benin Taps Two IMF Facilities to Counter Headwinds and Support SDGs

IMF News, July 14, 2022

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Benin has made significant strides in managing its economy over the past five years, but gains are at risk from: a deteriorating regional security situation at its northern borders; COVID-19-induced scars; and higher living costs amid the war in Ukraine.
To address financing needs and support the National Development Plan 2018-25, Benin accessed the IMF’s Extended Fund Facility (EFF) and the Extended Credit Facility (ECF) with a financial package to the tune of nearly US$650 million.
The arrangement combines resources under the IMF’s High Combined Credit Exposure (HCCE) policy and is one of the largest Fund-supported programs in the region at about four times Benin’s quota at the IMF.

Total financial package: nearly US$650 million over 42 months.
Upfront financing: US$300 million for the first six months of the arrangement.
Immediate disbursement: US$143 million were disbursed immediately after program approval by the IMF Executive Board on July 8.
Financing characteristics: large financial support at near-zero interest rate, enabling Benin to postpone until 2023 the reduction in the budget deficit that was planned in the original 2022 budget.

The Government Action Program (PAG) 2021–2026, anchored in the National Development Plan (PND) 2018–25, centers on three pillars:
- (i) strengthening democracy, the rule of law, and consolidating governance;
- (ii) pursuing structural transformation and integrating national and regional value chains, supported by measures to enhance the business environment;
- (iii) improving the well-being of the population.
Sectoral focus and projects:
- Promote agriculture, tourism, the digital economy, and the knowledge economy, with emphasis on technical education and vocational training.
- Complete major projects launched during 2016–21 to reduce infrastructure gaps in transport, energy, and water.
Fiscal framework:
- Initiatives are underpinned by sound public financial management, transparency, and robust domestic revenue mobilization to consolidate macroeconomic stability and lessen debt burdens on future generations.

Social programs and targets:
- Expand existing social programs and introduce new ones to strengthen social safety nets.
- Flagship program ARCH aims to improve access to health services among vulnerable groups.
- Expand national school feeding program (PNASI) from current coverage of 75 percent of schools to all schools in the upcoming school year.
- Provide conditional cash transfers to more than 30,000 girls and young women attending school across all 77 municipalities of Benin.
- Strengthen assistance to disabled people and caregivers.
- Raise the minimum wage after consultation with unions (last adjusted in 2014) to alleviate purchasing power erosion among low-wage earners.
- Step up investment in health infrastructure and access to clean water in rural areas; promote girls’ education and vocational training.
Program safeguard:
- The amount of priority social spending is subject to a semi-annual floor under the program.

Northern border threats: Benin has faced an upsurge in terrorist attacks along its northern borders since 2019.
National security strategy:
- A “civilian approach” to strengthen state presence and basic public services in communities at risk.
- Programs include rehabilitating farm roads, improving access to microcredit, promoting agriculture and income-generating activities, providing clean water in rural areas, and supporting livestock management.
Estimated cost of the strategy: 630.8 billion West African CFA francs (about US$1 billion) over 2021–2026.
The program includes upfront spending to mitigate security risks and consolidates counterterrorism and sub-regional security cooperation.

Revenue mobilization is the cornerstone of the government’s economic reform program to meet development and security needs while preserving debt sustainability.
Governance and anti-financial-crime measures:
- The program aims to strengthen public financial management, the rule of law, the fight against money laundering and terrorist financing, and the governance framework.
- The IMF is providing technical assistance as part of a governance diagnostic and will provide technical inputs into a homegrown medium-term revenue mobilization strategy.
Expected institutional conditions:
- The IMF assessed Benin meets HCCE qualifying criteria: (i) exceptional balance of payments needs; (ii) risks to public debt sustainability are adequately contained; and (iii) institutional capacity is robust enough to ensure reasonably strong prospects of program success.

First-ever use of HCCE policy to combine PRGT/PRGT-like concessional financing and GRA resources beyond the normal combined access limit for a blended EFF/ECF arrangement.
Frontloaded disbursements represent a vote of confidence in Benin’s track record in fiscal responsibility.
Anticipated near-term objectives:
- Help meet urgent financing needs tied to COVID-19 scars, higher cost of living amid the war in Ukraine, and regional security risks.
Anticipated medium- to long-term objectives:
- Support pursuit of the SDGs, spur private sector initiatives, leverage Benin's potential, and improve daily lives of Beninese families through steadfast program implementation.

Benin Taps Two IMF Facilities to Counter Headwinds and Support SDGs — July 14, 2022 (IMF).